ACIT-CC-7(3), MUMBAI vs. CFM ASSET RECONSTRUCTION PRIVATE LIMITED, MUMBAI, MAHARASHTRA

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “C”, MUMBAI BEFORE SHRI ANIKESH BANERJEE, JUDICIAL MEMBER AND SHRI MAKARAND VASANT MAHADEOKAR, ACCOUNTANT MEMBER ITA No.3821/Mum/2025 (Assessment year: 2022-23) ITA No.3810/Mum/2025 (Assessment year: 2021-22)

ACIT-C.C.-7(3), Mumbai vs CFM Asset Reconstruction Private Room No.655, 6th floor, Ltd. 1st floor, Wakefield House, Sprott Aayakar Bhavan, M.K. Road, Churchgate, Mumbai-400020 Road, Ballard Estate, Mumbai G.P.O., Mumbai-400001 PAN: AAGCC1296B APPELLANT RESPONDENT Assessee by : Shri Vimal Punmiya, C.A. Revenue by : Shri R.A. Dhyani, (CIT -DR) Date of hearing : 23/06/2026 Date of pronouncement : 29/06/2026 O R D E R Per Bench: Both the appeals of the revenue filed against the order of the Ld. Commissioner of Income Tax-Appeals-49, Mumbai [for brevity the “Ld. CIT(A)”], order passed under section 250 of the Income Tax Act 1961 (for brevity ‘the Act’) for Assessment Years 2021-22 and 2022-23, date of order 27.03.2025 for both the assessment years. The impugned orders emanated from the order of the Ld. Deputy Commissioner of Income Tax C.C.-7(3), Mumbai (for brevity the ‘Ld. AO’)

2 ITA No.3821 & 3810/Mum/2025 CFM Asset Reconstruction Pvt. Ltd. order passed under section 143(3) of the Act date of order31.12.2022 for A.Y.2021-2022 and order passed u/sec. 143(3) date of order 21.06.2023 for A.Y. 2022-23.

3 ITA No.3821 & 3810/Mum/2025 CFM Asset Reconstruction Pvt. Ltd. the assessee’s submission and deleted the addition. Being aggrieved revenue filed an appeal before us. 4. The Ld. DR argued and contended that the assessee’s group employee Shri D.P. Nair has duly accepted that the title ‘DD’ mentioned in the excel sheet is related to the cash transaction. The said excel sheet, name “Satyanarayan” was duly found in the laptop of the President of the assessee-company, Smt. Richa Porwal during the course of search action of the assessee group which contended that the assessee had acquired stressed asset of Limtex Group amount to Rs.38.50 crore. As per the excel sheet the amount to Rs.2.05 crore required for acquiring the said assets was arranged through ‘DD’. The Ld. AO has rightly relied on the statement of Shri D.P. Nair, Executive Assistant of Shri Om Prakash Porwal promoter of the CFM Group in which Shri D.P. Nair had disclosed that the term ‘DD’ is used to donate the cash transaction. Accordingly, the Ld. AO concluded and made the addition amount to Rs. 2.05 crore with the total income. The Ld. DR relied on the order of the Ld. AO. The Ld. DR filed a written note which is reproduced as below: “Brief facts of the case: 1. Assessee is engaged in the business of securitization and asset reconstruction of financial assets. 2. Assessee filed its return of income for A.Y. 2022-23 on 07.11.2022 declaring total income of Rs. 49,15,84,150/- The return of income was processed u/s 143(1) of the IT Act. 3. A search and seizure action was carried out u/s 132 of the Act on 08.12.2021 in case of M/s. CFM Asset Reconstruction Pvt. Ltd. Assessee was also covered during the search proceedings. 4. Further for A.Y. 2022-23 assessee's case was selected for complete scrutiny as per guidelines issued by CBDT 5. Assessment order was passed u/s 143(3) vide order dated 21.06.2023.

4 ITA No.3821 & 3810/Mum/2025 CFM Asset Reconstruction Pvt. Ltd. Gist of issues/GOA: 1. On facts and in circumstances of the case and in law Ld. CIT(A) erred in deleting the addition of Rs. 2,05,00,000/- made by AO under section 69C treating the same as unexplained expenditure 2. On facts and in circumstances of the case and in law Ld. CIT(A) erred in not appreciating that addition was based on credible evidence recovered during a search and seizure operation under section 132 of the Act which included an Excel document titled 'Satyanarayan' indicating unaccounted cash transactions 3. On facts and in circumstances of the case and in law Ld. CIT(A) erred in disregarding the corroborative statement of Shri D.P. Nair, an executive assistant of the group company who had clearly stated that entry marked 'DD' in the document referred to cash utilized in the transaction and whose statement was detailed and supported by other seized material. 4. On facts and in circumstances of the case and in law Ld. CIT(A) failed to consider that assessee did not furnish any documentary evidence to substantiate its claim that an amount of Rs.2.05 crore represented demand drafts and not cash nor did it provide any satisfactory explanation regarding source and nature of such amount 5. On facts and circumstances of the case and in law, Ld. CIT(A) failed to appreciate that the burden of proof under section 69C lies on the assessee to satisfactorily explain the nature and source of expenditure which it failed to discharge. Finding on the issues/GOA: All issues are inter-related hence taken up together: 1. On facts and in circumstances of the case and in law Ld. CIT(A) erred in deleting the addition of Rs.2,05,00,000/- made by AO under section 69C treating the same as unexplained expenditure 2. On facts and in circumstances of the case and in law Ld. CIT(A) erred in not Appreciating that addition was based on credible evidence recovered during a search and seizure operation under section 132 of the Act which included an Excel document titled 'Satyanarayan' indicating unaccounted cash transactions 3. On facts and in circumstances of the case and in law Ld. CIT(A) erred in disregarding the corroborative statement of Shri D.P. Nair, an executive assistant of the group company who had clearly stated that entry marked 'DD' in the document referred to cash utilized in the transaction and whose statement was detailed and supported by other seized material.

5 ITA No.3821 & 3810/Mum/2025 CFM Asset Reconstruction Pvt. Ltd. 4. On facts and in circumstances of the case and in law Ld. CIT(A) failed to consider that assessee did not furnish any documentary evidence to substantiate its claim that an amount of Rs.2.05 crore represented demand drafts and not cash nor did it provide any satisfactory explanation regarding source and nature of such amount 5. On facts and circumstances of the case and in law, Ld. CIT(A) failed to appreciate that the burden of proof under section 69C lies on the assessee to satisfactorily explain the nature and source of expenditure which it failed to discharge. AO has made addition based on: (Para 8 onwards) 1. A search and seizure action was carried out u/s 132 of the Act on 08.12.2021 in case of M/s. CFM Asset Reconstruction Pvt. Ltd. Assessee was also covered during the search proceedings. (Para 2 of AO) 2. During the course of search, a document saved in excel file as 'Satyanarayanan 1(1)' was found from the laptop of Smt. RichaPorwal (President of the CFM Asset Reconstruction Pvt. Ltd.) (Incriminating Material) (Para 8.1 of AO) 3 Some transactions were seen in that excel sheet found. According to the explanation given by Smt. RichaPorwal the transactions were pertaining to source of funds arranged by the assessee company for acquiring stressed assets of Limtex Group (Para 8.1 of AO) 4. It was observed that assessee company had acquired stressed assets of Limtex from Bank at discounted price of Rs.38.5 crores out of which 27 crores arranged by way of Resolution Service Agents Deposit and Rs.8 crores from ARC funds. 'Remaining Rs.2.05 arranged through DD (i.e. cash)'. Further it was evident that out of the total funds arranged for acquiring stressed assets of Limtex Rs.2.05 crores were arranged in form of cash. The same is dully corroborated by the statement of DP Nair dated 08.12.2021. (Para 8.2 of AO) 5. Final Finding: a. Assessee acquired stressed assets of Limtex from the bank at a discounted price of Rs.38.5 crores out of which 27 crores arranged by way of Resolution Service Agents Deposit and Rs.8 crores from ARC funds. Remaining Rs.2.05 arranged through DD (Para 8.6 of AO). b. From the evidence gathered and statements recorded it can be concluded that the said amount of Rs.2.05 crores was arranged in cash. c. Statement of Smt. RichaPorwal corroborating the same (Para 8.7 of AO) d. Further statement of Shri DP Nair who is the executive assistant of the promoter corroborating cash transactions (Para 8.8 to 8.10 of AO)

6 ITA No.3821 & 3810/Mum/2025 CFM Asset Reconstruction Pvt. Ltd. CIT (A) has deleted the additions based on: (Page 32 onwards) Amount paid by appellant to acquire the said stressed accounts out of own funds and out of funds/loan from Karnataka Bank. Excel sheets found in the laptop could be rough notings which do not match with actual transactions. Details of source of funds provided by the appellant and all the transactions done through banking channels. Hence addition made by AO deleted Prayer: Hence in light of the facts and circumstances of the case and legal proposition put forward appeal filed by the department be allowed and addition made by AO be upheld.”

7 ITA No.3821 & 3810/Mum/2025 CFM Asset Reconstruction Pvt. Ltd. crores paid on 12.03.2020 statement highlighted with from UBI current account relevant transaction was taken by utilizing the 2. Sanction letter of UBI OD account held with UBI overdraft facility 3 17.03.2020 Bank Overdraft from 15,80,00,000 1. Extract of UBI Overdraft bank Union Bank of India (UBI) statement highlighted with (Erstwhile Andhra Bank) relevant transaction 2. Sanction letter of UBI overdraft facility 4 18.03.2020 Term loan from 15,00,00,000 1. Sanction letter of Karnataka Karnataka Bank Bank Term Loan. 2. Request letter submitted with Karnataka Bank for disbursement of Term loan to assignor bank 3. Email confirmation from Karnataka Bank for disbursement of Term Loan. Total 38,50,00,000

8 ITA No.3821 & 3810/Mum/2025 CFM Asset Reconstruction Pvt. Ltd. Thus, the inference was drawn by the Ld. AO is based on two different documents, retrieved from two different devices and explain by two different persons without any factual linkage. The assessee furnished complete details of sources of fund utilized for acquisition of NPAs/stressed assets, aggregating to Rs.38.50 crore comprising overdraft facilities, auto-sweep fixed deposits, term loan from Karnataka Bank and transfer through banking channel. Related to the evidence, the Ld. AR submitted the statement on account and credit sanctioned by Banks in APB page 275 to 300.

9 ITA No.3821 & 3810/Mum/2025 CFM Asset Reconstruction Pvt. Ltd. Thus, it is seen that the amount of Rs 38,50 Crores was sourced out of own funds and out of Loan from Karnataka Bank. Appellant has provided the bank statements in support of its contention.

From the details submitted by the appellant, it appears that the excel sheet found in the laptop of Smt Richa Porwal could be in the nature of rough notings, which do not match with the actual transaction. It is also observed that the statement of Shri D P Nair was recorded with respect to some other document and not on the excel file. In the present case, the appellant has provided details of the source of funds of Rs 38.50 Crores, which has come through banking channels. Therefore, the addition of Rs 2.05 Crores made u/s 69C cannot be sustained. AO is directed to delete the same.”

10 ITA No.3821 & 3810/Mum/2025 CFM Asset Reconstruction Pvt. Ltd. the notation “DD”, the Ld. AO concluded that the assessee had incurred unaccounted cash expenditure amounting to Rs.2.05 crore while acquiring the stressed assets/NPA accounts of the “Limtex Group”. The addition under section 69C of the Act was primarily made on the basis of the statement of Shri D.P. Nair, an employee of the group, who allegedly stated that the notation “DD” represented cash transactions. However, on careful perusal of the material available on record, we find that the assessee had furnished complete details regarding the source of funds utilized for acquisition of the stressed assets aggregating to Rs.38.50 crore. The assessee demonstrated that the acquisition was funded through overdraft facilities, auto-sweep fixed deposits and term loan facilities obtained from Union Bank of India and Karnataka Bank respectively, all routed through proper banking channels. The relevant bank statements, sanction letters and supporting documentary evidences were placed in the paper book at pages 274 to 300. The Ld. CIT(A), after verification of such documentary evidences, recorded a categorical finding that the actual source of funds utilized by the assessee did not match with the rough notings appearing in the excel sheet and that the entire acquisition consideration stood duly explained through banking transactions.

11 ITA No.3821 & 3810/Mum/2025 CFM Asset Reconstruction Pvt. Ltd. alleged interpretation of the notation “DD”, no independent corroborative material, cash trail, unaccounted asset, unexplained expenditure or incriminating financial evidence was brought on record by the revenue to establish that the assessee had actually incurred cash expenditure of Rs.2.05 crore. It is a settled proposition of law that addition under section 69C cannot be sustained merely on the basis of loose sheets, rough notings or uncorroborated third-party statements without any supporting evidence demonstrating actual flow of unaccounted money. In the present case, the revenue has failed to establish any nexus between the alleged cash expenditure and the assessee’s books or financial transactions. On the contrary, the assessee has satisfactorily explained the entire source of acquisition funds through documentary evidences and banking channels. Accordingly, we do not find any infirmity in the well-reasoned findings recorded by the Ld. CIT(A) in deleting the impugned addition. Therefore, the addition of Rs.2.05 crore made by the Ld. AO under section 69C of the Act is hereby deleted. Accordingly, the Grounds raised by the revenue stand dismissed.

ITA No.3810/Mum/2025 A.Y. 2021-22 10. The brief facts of the case are that the assessee had paid the consultancy charges to M/s. AGV Consultants (in short, “AGV”) which amount to Rs.7,93,61,000/- in the impugned assessment year. It is informed by the investigation wing in case of assessee that a survey action u/sec. 133A was carried out on 07.12.2020 by the DDIT (Inv) 1, Mumbai in the case of ‘AGV’. During survey proceeding the statement of Shri Vincent Albuquerque, the partner of ‘AGV’ recorded on oath u/sec. 131 and as per the statement he accepted that the no staff was deployed nor had hired any professional person for carry out the

12 ITA No.3821 & 3810/Mum/2025 CFM Asset Reconstruction Pvt. Ltd. business of the firm. He has also admitted that he had not acquired specific professional or qualified degree or qualification for providing the consultancy service. On basis of the survey statement, the Ld. AO considered the payment in appearing to the consultancy charges to ‘AGV’ is bogus, and accordingly, the amount of Rs.7,93,61,000/- was added back with the total income. But aggrieved assessee filed appeal before the Ld. CIT(A). The Ld. CIT(A) deleted the addition. Being aggrieved the revenue filed an appeal before us.

13 ITA No.3821 & 3810/Mum/2025 CFM Asset Reconstruction Pvt. Ltd. related services. The assessee company maintained that the payment was genuine and incurred wholly for the purpose of its business, supported by agreements, invoices, TDS certificates, and ledger entries. However, during the course of a search and seizure operation conducted under Section 132 of the Income-tax Act, 1961, at the premises of the CFM Group, critical evidence came to light. Incriminating documents, digital records, and statements obtained from key personnel such as Shri D.P. Nair and Smt. Richa Porwal revealed a systematic modus operandi wherein payments shown as professional fees were, in reality,mere accommodation entries. These were routed through paper entities, and a significant portion of the cash was eventually returned to the group after deducting commissions-effectively creating a circular flow of money for the purpose of tax evasion. On scrutiny, it was found that M/s AGV Consultants lacked even the most basic requirements expected of a professional advisory firm. The entity had no infrastructure, no staff, and its own partner, Shri Vincent Albuquerque, admitted under oath during a survey under Section 133A that he operated alone, without professional qualifications or support personnel. The firm's financials revealed that it declared turnovers in the range of Rs. 65 to Rs. 97 crores annually with almost no business expenditure, leading to implausible profit margins of 98-99%, which is unheard of in the consultancy sector. Further, the statements made by senior officials of CFM ARC, particularly Smt. Richa Porwal, were contradictory and failed to demonstrate how AGV Consultants were identified or selected, or what measurable outcomes were delivered by them. She admitted to signing multiple agreements with the firm without ever meeting or corresponding with them-thereby casting further doubt on the authenticity of the transactions.”

14 ITA No.3821 & 3810/Mum/2025 CFM Asset Reconstruction Pvt. Ltd. stated that the AGV was appointed as a resolution service manager under separate MoU entered into with different Trust managed by the assessee. So, the assessee had discharged the initial onus cast upon it u/sec. 37(1) of the Act by submitting all the evidence before the Ld. AO.

Name Descriptio Assigned by Redemption/ % of Amount of Fees charged as of the n of the Recovery fees Fees per the mandate trust assets amount agre ed upo n CFMAR Gill Acqua L & T 78,00,00,000 5% 39,00,0000 5% of the C Trust- Hydro Infrastructur resolution 1, Gill Power e Finance (recover agent) Generatio n Company P. Ltd. CFRARC Pool of IndusInd 19,67,46,000 5% 98,37,000 5% of the total Trust-2 1013 retail Bank security IndusIn loan Receipts(Resoluti d accounts on amounts) redeemed CFMAR Pool of IndusInd 22,49,40,000 5% 1,12,47,000 5% of the total C Trust- 378 retail Bank Security Receipts 1, loan (Resolution

15 ITA No.3821 & 3810/Mum/2025 CFM Asset Reconstruction Pvt. Ltd. IndusIn accounts amounts d redeemed CFMAR Pool of 46 IndusInd 6,98,80,000 5% 34,94,000 5% of the total C Trust- retail loan Bank Security Receipts 4, accounts (Resolution IndusIn amount) d redeemed CFMAR Pool of 52 IndusInd 31,56,60,000 5% 1,57,83,000 5% of the total C Trust- retail loan Bank Security Receipts 3, accounts (Resolution IndusIn amounts) d redeemed

16 ITA No.3821 & 3810/Mum/2025 CFM Asset Reconstruction Pvt. Ltd. “12.1. From the perusal of the above reasons for re-opening recorded by the Id. Assessing Officer, it is pointed out that the information available is only in respect of addition of management consultancy fees of Rs.38,25,000/- paid to AGV Consultants. Re-assessment proceedings were completed by passing the impugned order, wherein addition of Rs.38,25,000/- was made towards management consultancy fees relating to AGV consultants and making further disallowance claim of deduction u/s.801A amounting to Rs.148,57,76,785/-. On appeal before Id. CIT(A), addition of Rs.38,25,000/- towards management consultancy fees relating to AGV Consultants was deleted. Disallowance of claim of deduction made u/s.801A was sustained. Assessee is in appeal before the Tribunal on the disallowance of claim of deduction u/s.80IA, however, Department is not in appeal against the deletion of addition in respect of management consultancy fees related to AGV Consultants.”

17 ITA No.3821 & 3810/Mum/2025 CFM Asset Reconstruction Pvt. Ltd.

18 ITA No.3821 & 3810/Mum/2025 CFM Asset Reconstruction Pvt. Ltd.

19 ITA No.3821 & 3810/Mum/2025 CFM Asset Reconstruction Pvt. Ltd.

The above details are furnished to provide a clear understanding of the nature of services rendered by M/s AGV Consultants, the activities undertaken in relation to the respective trusts, the recoveries achieved during the course of such engagement and the basis on which the fees payable under the respective arrangements were determined. The same is submitted for the assistance of the Hon'ble Tribunal. Activities undertaken by AGV Consultants are as under: The following activities were undertaken by AGV Consultants in relation to the recovery of loan acquired by CFM ARC:

20 ITA No.3821 & 3810/Mum/2025 CFM Asset Reconstruction Pvt. Ltd. 1. Portfolio Recovery Management  Took over and actively managed recovery efforts for a portfolio loan accounts acquired from IndusInd Bank.  Formulated and implemented account-specific recovery strategies for stressed loan accounts.  Monitored recovery performance and resolution progress across the assigned portfolio.

 Identified, evaluated and negotiated settlement opportunities with borrowers.  Conducted detailed settlement discussions for arriving at mutually acceptable repayment arrangements.  Assisted in structuring and negotiating One-Time Settlement (OTS) proposals and other recovery arrangements.  Evaluated settlement proposals received from borrowers and negotiated commercial terms for recovery.  Coordinated implementation of approved settlement arrangements and monitored compliance with payment commitments.

21 ITA No.3821 & 3810/Mum/2025 CFM Asset Reconstruction Pvt. Ltd.  Facilitated recoveries through negotiated settlements, voluntary payments and structured repayment plans.  Assisted borrowers and stakeholders in arriving at commercially viable resolution mechanisms for stressed accounts. 4. SARFAESI and Enforcement Support

 Coordinated enforcement of security interests in eligible accounts wherever voluntary recovery efforts were unsuccessful.  Assisted in implementation of recovery measures under applicable recovery and enforcement frameworks,  Coordinated with authorized officers, advocates, recovery agencies and other stakeholders involved in enforcement proceedings.  Facilitated possession and recovery actions against secured assets.  Monitored enforcement proceedings and ensured timely follow-up of recovery measures undertaken for realization of dues.  Assisted in the recovery process through repossession, enforcement and realization of secured assets wherever considered commercially appropriate.

22 ITA No.3821 & 3810/Mum/2025 CFM Asset Reconstruction Pvt. Ltd.  Coordinated with repossession agencies, recovery personnel, valuers, advocates, authorized officers and local representatives involved in the recovery process.  Facilitated communication and exchange of information among borrowers, recovery agencies and CFM ARC. Assisted in implementation of recovery strategies at the account level through continuous stakeholder coordination.  Followed up with various stakeholders to ensure timely progress of recovery and resolution actions.

Consolidated Nature of Services Rendered The services rendered by AGV Consultants were comprehensive recovery, enforcement support, asset realization and resolution management services involving active participation throughout the recovery lifecycle. The activities included formulation and execution of recovery strategies, borrower tracing and engagement, personal recovery visits, settlement negotiations, One-Time Settlement discussions, coordination with repossession agencies, enforcement of security interests, repossession and sale of secured assets, liaison with recovery stakeholders, monitoring of recoveries, maintenance of account-level MIS and continuous reporting of recovery progress.

23 ITA No.3821 & 3810/Mum/2025 CFM Asset Reconstruction Pvt. Ltd. Accordingly, AGV Consultants is actively involved in the recovery and resolution process of the stressed assets and did not merely act as a referral agent or intermediary. Its role extended to operational, recovery, enforcement, coordination and resolution support functions aimed at maximizing recoveries from the acquired loan portfolio. .”

24 ITA No.3821 & 3810/Mum/2025 CFM Asset Reconstruction Pvt. Ltd. banking transactions evidencing payment through banking channels. The details furnished by the assessee clearly demonstrate that ‘AGV’ was engaged in recovery and resolution of stressed assets and the consultancy fees was linked with successful recoveries/resolution amounts achieved by ‘AGV’. The tabular details placed on record reveal substantial recoveries in respect of various stressed asset portfolios assigned by different banks and financial institutions, against which consultancy fees at agreed percentage was paid. Thus, the assessee had duly discharged the initial onus cast upon it under section 37(1) of the Act by furnishing primary evidences to establish genuineness of the expenditure and business expediency thereof.

25 ITA No.3821 & 3810/Mum/2025 CFM Asset Reconstruction Pvt. Ltd. ITAT, Mumbai in the cases of Das Offshore Ltd. (supra) & ITD ITD Cem Joint Venture (supra), wherein similar additions/disallowances were not sustained in absence of cogent evidence proving the transactions to be sham or bogus. In the present case also, the revenue has merely doubted the capability of ‘AGV’ but has failed to disprove the documentary evidences furnished by the assessee. The commercial expediency of engaging a consultant cannot be substituted by the subjective opinion of the Assessing Officer. Once the assessee has demonstrated that the expenditure was incurred wholly and exclusively for the purpose of business and supported the same by documentary evidences, the disallowance under section 37(1) cannot be sustained merely on presumptions and conjectures. Accordingly, we do not find any infirmity in the findings recorded by the Ld. CIT(A) in deleting the impugned disallowance of Rs.7,93,61,000/-. Therefore, the Grounds raised by the revenue stand dismissed.

26 ITA No.3821 & 3810/Mum/2025 CFM Asset Reconstruction Pvt. Ltd. Mumbai 5. गाड�फाइल/Guard file. BY ORDER, //True Copy// (Asstt. Registrar), ITAT, MUMBAI